Flat Property Taxes

Controversy abounds these days between the two candidates for Mayor of Takoma Park, the incumbent, Kate Stewart and challenger Roger Schlegel. Regardless of who one supports, the contest forces each of us to think deeper about our values and ideologies. One of the top issues concerns property taxes. Mr. Schlegel asserts that taxes have risen considerably under the Mayor’s five years of leadership and Ms. Stewart says that’s not true: yes, taxes have gone up due to inflation and rather inconsistent assessments across the city, but tax rates have gone down and the City has run a tight ship.

I am paraphrasing and generalizing what the two candidates have said in their numerous respective oral comments and written responses. Who is right on this issue? 

Anyone who owns property here is naturally concerned about the seeming relentless rise in property taxes, not just for themselves, but also out of concern over the affordability of housing in general.

Part I

Montgomery County does the tax billing for all the municipalities in the County as well as for itself.  The statement that we recieve shows assessment figures, tax rates and charges due. It can be a bit confusing for many people. First, to make sense of it, I am going to refer to the real property tax bill that the Schultz household receives.

There’s a list of dollar figures under the “tax/charge” heading that contains the following:

State property tax$476.00
County property tax$4,212.60
Takoma Park property tax$2,293.73
Solid waste charge$31.19
Takoma Park special$92.00
TOTAL$7,105,52
Actual 2020-21 Real Property Tax Bill

To simplify the math, I will omit the last two lines. The first three lines add up to $6,982. The combination of State and County figures equals $4,688, which is exactly 67% of the total. Takoma Park’s portion adds up to 33%. 

Bluntly put, this means that only one-third of the Schultz’s tax bill results from Takoma Park taxation. When we write our check, two-thirds is owed to the County and State and only about $2,300 goes to my city.

Part II

Keep the above in mind as we look at property tax rates. The City Council annually sets a tax rate for the coming fiscal year. The rate is expressed as X cents per $100 of a property’s assessed value. 

Not to go too far astray here, but it may help you to know that the State of Maryland determines the assessment of every property in Maryland. (The “assessed value” has only a casual relationship to the actual “market value” of one’s property.) The State assesses properties on a 3-year (triennial) cycle. If your property’s assessment goes up and the tax rate remains the same, then your bill will go up too. But the City Council can and does lower the rate as much as possible to keep our tax bills from rising too much. Unfortunately the County does not always do this. Its $5.8 billion operating budget has to pay for the schools.

The table below shows how tax rates have changed over the past 10 years from 2010 to 2019. These numbers come from annual city audits:

Property Tax Rate Comparison by Taxing
Jurisdiction in Dollars per $100 of
Assessed Value
change
FY 2010FY 2019
1City of Takoma Park0.58000.5291– .0509
2State of Maryland0.11200.11200
3Montgomery County0.68300.7166+ .0336
4M-NCPPC0.06900.0740+ .0050
5Transit District “Ride On”0.03700.0672+ .0302
6Recreation Areas0.01900.0264+ .0071
TOTAL1.50001.5250
Source: CAFR, fiscal year 2019, page 100

Notice that over the past 10 years Takoma Park’s tax rate has gone down from 58.0 cents to 52.9 cents = a reduction of over 5 cents. Maryland has not changed its rate. Lines 3, 4, 5 and 6 are all Montgomery County, which added together show the County has raised its tax rate by .0759 cents = an increase of 7.6 cents.

While Takoma Park has been steadily reducing its tax rate, the County has been raising its rate. Even worse, the County’s impact is twice as heavy because their share of the bill is twice as big as the City’s. As a consequence, even if the City Council lowers our rate and the County raises its rate, our tax bill goes up. Yes, some years the City has raised our tax rate because of exigencies.

Our Mayor and City Council are fighting a losing battle. Our tax bills go up each year largely because of the County. So, while the perception may be that the City is increasing our tax burden a lot, that is not the case. So, the answer to the question is that, for the most part, the City has either not been raising our property taxes or doing so quite modestly. It’s a mistake to say otherwise.

Part III

The City’s revenues come from many sources, the property tax being the largest percentage. Did you know that the property tax is the only revenue source over which the city has full control? Intergovernmental revenues are large, but almost all of it is restricted to designated purposes. By law the City cannot introduce a new tax. The County can.

Roughly 74 percent of the City FY’21 budget, excluding capital projects and debt service, is attributable to personnel costs; that is, salaries and benefits. This means in order to do large enough cuts to materially reduce our property tax bills, the Council would likely have to lay off a lot of people. Let me illustrate.

If the City Council chose to reduce our budget by 2%, say, that would mean a household’s $6,000 annual property tax bill would go down by about $40. That’s hardly of consequence. However, for the City, it is signifcant: about $280,000. If we multiply that by 74% = $207,000 which is a reduction of two lower salary level employees and the services they support. The bigger the reductions the more lay-offs.

Part IV

The current FY’21 budget does not raise our tax bill. The City Council set a tax rate equal to last year’s rate. The Council has built into the budget certain expenditure “holds” totaling $1.3 million due to uncertainties related to the Covid-19 pandemic. The “holds” come from leaving staff vacancies unfilled and other short term cuts. This money is held in the unrestricted General Reserve until the Council can decide via budget amendments where and when the money can best be used. The 2021 budget includes a new Covid-19 Fund of $440,000 to respond to the need “for direct assistance to business owners, housing assistance for vulnerable families, COVID-19 personal protective equipment purchases, and workforce development assistance” [2021 adopted budget, page 3].

So . . . . . I hope this contribution can help calm nerves about our city taxes and the conscientiousness of our City Manager and Councilmembers. We have enough to worry about with the “Crazy Uncle” in the Whitehouse without having to invent new ones in Takoma Park.

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